Gift, loan, or investment?

For many, the thought of all the money they were due to inherit being used for their parent's care home fees is enough to make them consider any other alternative. I'm increasingly finding that people are choosing to move in with their children or relatives, often contributing towards the cost of building an annex or extra bedroom or bathroom to the property. Where the parent has more than one child, this can cause friction in the family.

How is a monetary contribution
to be viewed?

Is the contribution a one off gift which is to be considered a potentially exempt transfer? And provided the donor lives a further seven years, does it simply reduce their estate? In this situation, the child providing the accommodation has benefited from the relative's estate to the detriment of other beneficiaries.

Is it a loan? In this case the appropriate paperwork must be drawn up and a charge taken over the property. Is the relative actually acquiring equity in the property? If so, has this been properly documented and are they named on the land registry title? Or is it advancement on their inheritance? Then the parent or relatives' will needs to be amended to reflect that.

These questions are often neglected and can cause problems on the death of the elderly parent or relative. As the beneficiaries look to divide up the estate, assumptions may be made that the carer has effectively received an early inheritance due to the contribution made in the deceased's lifetime. In turn the carer may feel the financial contribution given to them is only fair payment for the task of caring for the parent
or relative.

Case study

I recently advised a client who had put some money into their son's property to build a small annex for them to live in. My client had considered this to be
an advancement on his son's inheritance, with the
idea that the annex would provide a home for him for the rest of his live. However, prior to my client moving in, his son's job had become uncertain. As a result, he has requested that my client pay full market rent to live in the annex because otherwise, they could be rented out to assist with the mortgage on the property. My client had never envisaged having to pay rent on top of paying for the annex and is now placed in an awkward situation.

Where a contribution has been made to the house, it should be clear between the parent and that child, as well as the rest of the family, how that contribution is to be seen. For many the need to treat all your children equally is paramount.

However when a parent moves in with one child, it is not uncommon for the remaining children
to feel that that child is getting increasing amounts
of financial assistance whether with the mortgage,
the cost of a new kitchen or general household expenses. There may even be serious suggestions of undue influence.

There is legislation in place where suggestions of abuse or neglect arise, and social services can assist. For example section 44 of the Mental Capacity Act 2005 allows prosecution for wilful neglect, including where a carer has deprived a person of their support network. The Care Act 2014 also requires a local authority to set up a Safeguarding Adults Board and make enquires if they reasonably suspect that an adult in need of care is at risk of abuse or neglect.

However the involvement of social services may only cause further problems in the relations between the parties. The lesson, then, is to have a full and frank conversation about how any financial contributions are to be viewed.

Caroline Cook is a senior associate at Wedlake Bell

She writes the regular comment on inheritance in Private Client Adviser

Copyright & permissions